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CICA Releases Results of 2012 Captives Market Study

Source: Captive Insurance Companies Association (CICA)

Posted on 15 Mar 2012

A summary of the results of the annual survey conducted by the Captive Insurance Companies Association (CICA) was discussed on Tuesday at CICA’s 40th Annual International Conference in Scottsdale, Arizona.

The 2012 CICA survey, previously known as the “Fronting Survey”, was renamed the “Market Study” because it has evolved from just a fronting survey to address a number of market topics, including reinsurance and employee benefits.

Survey Methodology: The survey was drafted and approved by a CICA committee and was conducted by the independent consulting firm of Veris Consulting, LLC, of Reston, VA.

Participants were solicited through communications from CICA and through the collaborative efforts of a number of captive domicile trade associations. All participants were guaranteed anonymity and the results were compiled by Veris Consulting without identifying any of the participants.

Overview:

A majority of respondents represented single parent captives (57%), followed by risk retention groups (21%), agency captives (9%), association captives (7%) and segregated cell captives (6%). 79% of respondents reported being domiciled in a US jurisdiction, with 21% domiciled off-shore. 48% of respondents have been in existence for 10 or more years,30% in existence for 6-10 years, 18% in existence for 1-5 years, and 4% in existence for less than one year. Market Survey Objectives

* Track the use of fronting and the purchase of reinsurance by captive owners. * Identify the current fronting companies and reinsurers serving the captive insurance industry. * Determine the overall value of fronting and reinsurance to captive owners. * Understand the challenges faced by captive owners.

Key Findings

Utilization of captives for employee benefits has significantly increased over prior surveys where minimal usage had always been reported. Slightly more than 80% of this year’s survey participants reported placing only employee benefits, or some employee benefits in addition to their property casualty risks, into their captives. This is a clear indication of not only expanded utilization of captives, but also the benefit of captives as a risk management and risk financing tool for a myriad of corporate risks.

Captive insurance has permeated, to some degree, all industries. All major divisions in the U.S. Department of Labor’s Standard Industrial Classification (SIC) table were represented by this year’s survey participants. More than two-thirds of the survey participants’ captives serve four major industries – manufacturing, healthcare, financial services and all other (non-healthcare) services.

For the second straight year, less than 50% of the survey participants reported use fronting as part of their captive program. Of those survey participants that utilize fronting, there is generally a lower level of satisfaction with the services received from their fronting companies than the level of importance these services represent to their captive programs. There is a need for improved communications and service on the part of fronting carriers in order to better meet their customer’s expectations.

Despite the disconnect between the level of services desired and the level of satisfaction with the services actually received from fronting companies, the survey participants still perceive their fronting purchase as an overall “good buy” for their captive program.

More than 50% of the survey participants are capitalizing on a major reason touted for setting up a captive – access to the reinsurance market. With respect to reinsurance, survey participants also perceive this purchase as a good investment for their captives, albeit slightly less so than fronting.

Policyholder retention / growth of captive, management at parent company / justifying benefits of the captive, and regulatory issues were reported as the top three challenges by the survey participants.